Contribution
My Lords, I am grateful to the noble Viscount, Lord Younger, for introducing this debate, and to all noble Lords.
Let me briefly outline the problems that the chapter on guided retirement is seeking to address. The landscape is changing. I will not get into the detail of how we have gotten to where we are with my noble friend Lord Davies, but the reality is that we are now in a position where fewer than a million people in the private sector are saving into a DB pension, whereas more than 15 million are saving into DC schemes. Of course, unlike in DB schemes, DC members carry the risk themselves; what you get out depends entirely on what you put in and how it performs. The result is that DC savers face risks: the risk of savings not lasting through later life; the risk of market fluctuations; and the risk of inflation eroding purchasing power. They also face decision making risks, as retirement choices can be complex and poor decisions can have lasting effects. Clause 49 enables the Government to respond to those risks, putting savers first. Our objective is the vast majority of DC savers no longer having to make complex decisions about how to secure a sustainable income in later life, although—I say this in response to the noble Baroness, Lady Coffey—the freedom to choose absolutely will remain.
Let me explain how we envisage this happening. When DC members approach their scheme to access their savings, they will be presented with the default pension solution; in acknowledgement of my noble friend Lord Davies, let us call them “default plans” from this point onwards. At this point, the member will have the option to say yes to the default plan or say, “No, I want to choose a different way to use my assets”; that could be an alternative in their own scheme or elsewhere. We will explore this, including how schemes can give appropriate support, in our consultation. The interaction should not be a surprise to members at this point because we will ensure that, through appropriate communications, members hear about the concept of a default plan from very early on in their pension journey.
Clause 49 will require pension schemes to design and develop pension plans based on the generality of their membership, by which we mean gaining insight of what the vast majority of their members want from their pension assets. The noble Viscount, Lord Younger, wanted to know how they are meant to do this. We know that many schemes already have member panels; we expect these, as well as other channels to obtain member insight, to continue. The Government will not specify unless necessary but the regulator will work with schemes, through guidance, on how to identify the needs of their members. The Government will also consult on whether there should be minimum standards for gathering information so that the solutions reflect the generality of the scheme membership.
We anticipate that the evidence from scheme members will indicate that there is no one common set of aspirations, so we are giving the scheme the ability to introduce more than one default plan. Where there is more than one default plan, there will be a simple triage to determine which one the member is offered. Again, the benefit of this approach is that no member will have to make a complex decision on how to take their pension payments, except to request that they want to start receiving payment. As has been mentioned, the default plans must provide a regular income during retirement. We will consult on the detail, but it will be for trustees to determine exactly how they achieve this; there is scope for product innovation.
The clause also makes provision, as has been noted, for exemption where that would not be appropriate. I will turn to Amendment 178, which relates to this, in just a moment but, crucially, savers will retain the choice to access their pension another way. We know that retirement is not a linear experience and that circumstances change both at and after retirement. Life events such as deciding to work part-time, health conditions and bereavement can all factor in and have an impact on household incomes. That means that gathering insights and engagement with members will be important, alongside well-designed and flexible plans.